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KurtBevacqua · 08-15-2003, 12:43 PM

I don't think Markus' model is off base at all in emulating financial models of corporations. I do have an MBA and have taken my fair share of finance and accounting courses. I'd like to address a couple of the original issues in this post.

"1) In OOTP, profit is only added to cash after you proceed to next year. In reality, revenues and expenses will be accumulating year round (some in lump sums, some not. I'll assume most are not.) and your cash will also fluctuate as a result. In OOTP, beginning cash is the same as ending cash (no fluctuation throughout the year whatsoever), which is of course absurd. The significance is that there should be times throughout the current year where you will have more or less cash to spend in trades, free agents, promotions, etc. "

True, revenues and expenses do accumulate all year, but for bookkeeping purposes, it is an accepted practice to only annotate them at the end of the fiscal period, or it is also frequently done on a quarterly basis. I believe the OOTP way of doing this is a valid method created to emulated accepted accounting practices. I know of no large corporations that would annotate revenues on their books on a continuous basis. It's not practical when you start talking in the millions of dollars. Revenue fluctuates too much and too quickly to be tracked in such a way.

"2) Basing next year's budget for extensions on last year's revenue just doesn't make sense. You should budget it on next year's projected revenue. I realize next year's would be based on this year's which in turn would be based on last year's, but a true projection would not always be the same as the previous period. Projections need to take events (swings in the market, fan interest, ticket price, team performance) since the last period into consideration. It's just plain silly to assume that 2004's (next year's) revenue will always be exactly the same as 2002's (last year's) revenue, there's 2 years inbetween!"

Again, there are many companies out there that will produce budget’s on their past year’s numbers. Using projected revenue could land you in hot water if you projections are off base (or if your star player gets hurt and the team tanks). By using last year’s numbers you are basing projections on a a solid, accepted number and as a CEO you cover your butt with the investors by not taking what could amount to a wild guess on speculated revenues. No one will second guess you for using last year's real numbers. Everyone will second guess you if you speculate on future earnings and are wrong.

I do like the idea about throwing interest rates in. There could even be a return on investment calculation. This would all be very nice if we ever had the chance to raise capital to build stadiums. Then we would have to do some real future planning and cost-benefit analysis. I'd argue against adding inflation though. I don't want to have to build a spreadsheet to do current/future costs analysis. That's too much like work.

08-15-2003, 12:43 PM	#9
KurtBevacqua Hall Of Famer Join Date: May 2003 Posts: 2,968	I don't think Markus' model is off base at all in emulating financial models of corporations. I do have an MBA and have taken my fair share of finance and accounting courses. I'd like to address a couple of the original issues in this post. "1) In OOTP, profit is only added to cash after you proceed to next year. In reality, revenues and expenses will be accumulating year round (some in lump sums, some not. I'll assume most are not.) and your cash will also fluctuate as a result. In OOTP, beginning cash is the same as ending cash (no fluctuation throughout the year whatsoever), which is of course absurd. The significance is that there should be times throughout the current year where you will have more or less cash to spend in trades, free agents, promotions, etc. " True, revenues and expenses do accumulate all year, but for bookkeeping purposes, it is an accepted practice to only annotate them at the end of the fiscal period, or it is also frequently done on a quarterly basis. I believe the OOTP way of doing this is a valid method created to emulated accepted accounting practices. I know of no large corporations that would annotate revenues on their books on a continuous basis. It's not practical when you start talking in the millions of dollars. Revenue fluctuates too much and too quickly to be tracked in such a way. "2) Basing next year's budget for extensions on last year's revenue just doesn't make sense. You should budget it on next year's projected revenue. I realize next year's would be based on this year's which in turn would be based on last year's, but a true projection would not always be the same as the previous period. Projections need to take events (swings in the market, fan interest, ticket price, team performance) since the last period into consideration. It's just plain silly to assume that 2004's (next year's) revenue will always be exactly the same as 2002's (last year's) revenue, there's 2 years inbetween!" Again, there are many companies out there that will produce budget’s on their past year’s numbers. Using projected revenue could land you in hot water if you projections are off base (or if your star player gets hurt and the team tanks). By using last year’s numbers you are basing projections on a a solid, accepted number and as a CEO you cover your butt with the investors by not taking what could amount to a wild guess on speculated revenues. No one will second guess you for using last year's real numbers. Everyone will second guess you if you speculate on future earnings and are wrong. I do like the idea about throwing interest rates in. There could even be a return on investment calculation. This would all be very nice if we ever had the chance to raise capital to build stadiums. Then we would have to do some real future planning and cost-benefit analysis. I'd argue against adding inflation though. I don't want to have to build a spreadsheet to do current/future costs analysis. That's too much like work.